CLSNet
DLT Platform Goes Live with Early Adopters
Goldman Sachs and Morgan Stanley

November 28, 2018

CLSNet,
a standardized, automated bilateral payment
netting service for over 120 currencies
operating on a distributed ledger technology
(DLT) platform, is now live with Goldman
Sachs and Morgan Stanley. Six additional
participants from North America, Europe and
Asia, including Bank of China (Hong Kong),
have committed to joining the service, with
a steady onboarding of several other market
participants planned in the next few months.

The service has been developed for, and in
collaboration with, buy-side and sell-side
institutions. CLSNet has been designed to
standardize and increase the levels of
payment netting in the FX market for trades
not settling in CLSSettlement. By
standardizing and automating the calculation
of payment netting, CLSNet can reduce costs
for market participants and increase
liquidity in FX markets. The service also
supports compliance with certain principles
of the FX Global Code of Conduct.

Commenting on the launch, Alan Marquard,
Chief Strategy and Development Officer, CLS,
said, “We are excited to be launching CLSNet,
the first service of its kind to be operated
on a DLT platform. Further, this offering
demonstrates how we are using our unique,
trusted position at the center of the FX
market to solve industry challenges.

“A standardized and automated payment
netting process will lead to improved
intraday liquidity, reduced cost, improved
operational efficiencies and ultimately
support business growth.”

Currently, a lack of standardization and
automation introduces risk and operational
inefficiencies for market participants.
While a large number of participants
currently net with each other on a regular
basis, these processes often have manual
intervention and are not fully standardized
or scalable. The impact of limited payment
netting is exacerbated by the high
settlement costs associated with emerging
market currencies, despite their increased
relevance for FX market participants.

Further, there are many FX market
participants that do not net the payments in
respect of FX trades, instead choosing to
settle on a gross basis. These gross
payments have full exposure to settlement
risk, resulting in higher intraday liquidity
demands and causing institutions to hold
more capital.

CLSNet was built in conjunction with IBM and
runs on the Linux Foundation’s Hyperledger
Fabric blockchain framework. CLS’s
collaboration with IBM has produced valuable
insights into the benefits that DLT can
bring to post-trade processes. CLS will use
the knowledge and experience gained from
building this service on DLT architecture as
it looks to create greater efficiencies and
reduce costs for clients.

Adam Josephart, Managing Director, Fixed
Income Division, Morgan Stanley, said, "CLSNet
will deliver the standardization and
automation needed for non-CLS settled
transactions. We are delighted that Morgan
Stanley is one of the early adopters of the
service."

Barry
Lo, General Manager, Bank-wide Operation
Department of Bank of China (Hong Kong),
said, “We take great pleasure in
participating in CLSNet, which will enhance
operational efficiency in trade matching and
payment netting for non-CLS settled
currencies such as CNH, and strengthen our
risk management. This underscores our strong
commitment to driving Fintech innovation and
represents a major step forward in the
application of new technology in our
businesses.”

“Since we first pioneered the use of
blockchain in the FX market nearly three
years ago, IBM has been working hard with
CLS on the development and deployment of
CLSNet as the first post-trade production
deployment of blockchain technology in a
global market utility,” said Marie Wieck,
General Manager, IBM Blockchain. “With
CLSNet now in production with two of the
world's largest banks, for a major market
function, it is a testament to the ongoing
maturity of blockchain technology and the
value that it can deliver in practice.”